Monday, October 15, 2012

Alex Tabarrok Goes Gaga Over Nobel Prize Winners

The importance of a stable matching algorithm [what Roth and Shapley received the Noble award for] can be seen in what happens when such algorithms are not used. In trying to allocate residents to hospitals, for example, what typically happens when a stable algorithm is not used is unraveling and chaos. Unraveling occurs when offers are made earlier and earlier in an attempt to get a jump on the competition. Prior to the currently used National Residency Matching Program, for example, hospitals were making offers to residents up to two years in advance! All kinds of chaos arose as hospitals would make exploding offers, accept now or the offer explodes! Such offers would inevitable lead to recriminations and backing out of the offers as better matches were sought...

Most famously, Roth has worked on improving kidney allocation. I first wrote about this in 2004 (see also these posts):

Your spouse is dying of kidney disease. You want to give her one of your kidneys but tests show that it is incompatible with her immune system. Utter anguish and frustration. Is there anything that you can do? Today the answer is yes. Transplant centers are now helping to arrange kidney swaps. You give to the spouse of another donor who gives to your spouse. Pareto would be proud. Even a few three-way swaps have been conducted.

But why stop at three? What about an n-way swap? Let’s add in the possibility of an exchange that raises your spouse on the queue for a cadaveric kidney. And let us also recognize that even if your kidney is compatible with your spouse’s there may be a better match. Is there an allocation system that makes all donors and spouses better off (or at least no worse off) and that maximizes the number of beneficial swaps? In an important paper (Warning! Very technical. Requires NBER subscription.) Alvin Roth and co-authors describe just such a mechanism and show that it could save many lives. Who says efficiency is a pedestrian virtue?

Since that time we have seen many such swaps including this record of 60 people and 30 kidneys. Truly a noble match.

While hailing this madness, Tabarrok fails to point out the real problem with the shortage of kidneys, even though, he knows the real problem full well and has written about it:

The shortage of human organs for transplant grows worse every year. Better immuno-suppressive drugs and surgical techniques have raised the demand at the same time that better emergency medicine, reduced crime and safer roads have reduced organ supply. As a result, the waiting list for organ transplants is now 82,000 and rising and more than 6000 people will die this year while waiting for a transplant.

The economics of the shortage are so obvious that one popular textbook, Pindyck and Rubinfeld’s Microeconomics, uses the organ shortage to explain the effect of price controls more generally!

Perhaps because the shortage is growing, opposition to financial compensation for cadaveric donation (compensation for live donors is a distinct issue) appears to be lessening...Aside from the obvious benefits of saving lives, financial compensation for organ donation would likely save money.

Bottom line: Tabarrok is hailing two Noble prize winners for some work that really doesn't even need to be done, if the free market were allowed to operate. Tabarrok knows this but fails to mention it at all in his comments on the award to Roth and Shapely. The danger in the award to Roth and Shapely is that it is suggesting a non-market design for, in this case, kidney transplants, can be developed and it is somehow an important thing, although, it would seem obvious that a financial compensation system for kidneys would bring a lot more on the market. Thus, hailing Roth and Shapely misleads people from understanding what the best solution is: free markets.What's most alarming is that (at least) Roth, as I pointed out earlier, seems to think his non-market designs can be done on a much grander scale. Thus, another mad scientist playing with the people on the planet.

3 comments:

I'd argue that finding matches of 30 possible donors and adding in the equation of paying some and getting donations for the others would still be applicable to their work and would benefit even a fully capitalist organ program....

Agreed. While it's obvious that functioning price system would be the best way to increase kidney availability, it's still useful to be matching individuals up with the kidneys that would, on average, help every recipient the most. Boo to the government for creating artificial scarcity for organs, but hooray for these guys who are increasing the quality of the organs that the lucky recipients within the suboptimal system are receiving.